- The Washington Times - Monday, September 29, 2008

The House of Representatives Monday rejected a proposed $700 billion Wall Street rescue package, scrambling world financial markets and dealing a stunning rebuke to the Bush administration and their own party leaders who pleaded for passage of the unpopular bailout package.

The 228-206 vote leaves the package facing an uncertain future, amid dire warnings from Treasury Secretary Henry M. Paulson Jr. and many private analysts that the U.S. credit markets may seize up if the government refuses to act.

But dozens of conservative Republicans and liberal Democrats bucked their leadership on the final vote, ignoring desperate pleas from their leaders to reconsider. House leaders held the 15-minute vote open for nearly 40 minutes, roaming the packed House floor in a futile bid to pressure members to change their vote.

“I’m disappointed in the vote by the United Sates Congress on the economic recovery plan,” Mr. Bush said after a meeting at the White House with Ukrainian President Victor Yuschenko. “Our strategy is to continue to address this economic situation head on. We’ll be working to develop a strategy.”

Leading U.S. stock indexes fell sharply as it became apparent that the measure was going down to defeat. The Dow Jones index of industrial stocks was down nearly 600 points shortly before the closing bell.

Both Republican presidential nominee Sen. John McCain and Democratic rival Sen. Barack Obama had urged passage of the bailout package, with Mr. McCain taking a highly public role in the effort to draft a compromise bill that skeptical Republicans could support.

Congressional leaders were still trying to figure their next steps, with lawmakers anxious to adjourn with just over a month until Election Day. The Senate had planned to vote on the package Wednesday evening, on the assumption it would pass the House.

House Democratic leaders said they were exploring that possibility of a second vote, either with the same bill or a slightly modified one, particularly if world markets continue to sag.

After the vote, House Minority Leader John A. Boehner and other Republican leaders were incensed at what they called a highly partisan speech by House Speaker Nancy Pelosi during the debate. While other Democratic leaders acknowledged the difficult vote and praised Republicans who worked for a compromise, the California Democrat said the bailout was only part of the cost of failed Bush administration economic policies.

“Those days are over. The party is over,” Mrs. Pelosi said.

Mr. Boehner, who made his own impassioned speech for bipartisan backing of a bill he called a mud sandwich, said Mrs. Pelosi’s tone infuriated many in the House Republican caucus. He said her vote caused enough Republicans to reverse course and vote against the bailout.

Mrs. Pelosi’s words, the Ohio Republican said, “poisoned our conference, caused a number of members that we thought we could get, to go south.”

In the end, 140 Democrats and 65 Republicans voted for the bailout, while 95 Democrats and 133 Republicans joined together to defeat the bill. Democratic leaders said afterward they were counting on at least half of the Republican caucus to support the measure.

House Financial Services Committee Chairman Barney Frank, who helped craft the compromise bill, said the criticism of Mrs. Pelosi was a bid to conceal the fact that Republicans leaders could not deliver enough votes to ensure passage.

“Just because somebody hurt their feelings, [Republicans] decided to hurt their country,” Mr. Frank said

The $700 billion bailout was designed to restore confidence in the banking system and prevent an implosion of the U.S. and global credit markets. Under Mr. Paulson’s original plan, unveiled Sept. 18, the Treasury would buy huge numbers of bad mortgages and mortgage-based securities on the books of U.S. and foreign financial firms in order to get them lending again.

The proposal was significantly modified during 11 frantic days of hearings, caucuses and late-night bargaining sessions on Capitol Hill.

Click here for a summary of the proposal

Statements from President Bush, Henry Paulson

Letter from Jim Nussle, director of the Office of Management and Budget (PDF)

Lawmakers demanded strict oversight of the program, and reserved the right to veto the second tranche of $350 billion the Treasury wants. The compromise bill also gives the government the right to take an ownership stake in the companies it rescues and limits golden parachute pay packets for banks and other financial firms that participate.

A House Republican alternative — establishing a federal-backed mortgage insurance program troubled banks could use — was included in the bill as an option Treasury workout specialists could use.

Mr. Paulson and Federal Reserve Board Chairman Ben S. Bernanke said the government could eventually sell the now-worthless mortgage-related assets on its books for a higher price as the market settles, and the ultimate cost to taxpayers was likely to be far below $700 billion.

It was a day of high drama and impassioned rhetoric ahead of the House vote. Conservative Republicans objected to the idea of a taxpayer-financed bailout of the private market, while liberal Democrats said the program wouldn’t work and wouldn’t help Main Street while it was rescuing Wall Street.

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